When is contentious business non contentious business?
Nick McDonnell is a Director and the Kain Knight Costs Lawyer on record for the Appellant, Cam Legal Services Ltd.
Kain Knight Costs Lawyers are acting for the Appellants in the Court of Appeal case of Cam Legal Services Ltd v Belsner, a case being labelled by many as the ‘costs case of the decade’ as it may have profound ramifications to those solicitors who charge fees to their clients where those fees are greater than the costs recovered between party and party.
The case was heard over three days on 4, 5 and 6 October 2022 before the Master of the Rolls (the Rt. Hon. Sir Geoffrey Vos), the Chancellor of the High Court (Lord Justice Flaux) and Lord Justice Nugee.
Whist the case itself arose out of a low value personal injury claim stemming from a road traffic accident, the issues the Court has had to consider go to the heart of nearly every retainer every solicitor and their client enters into where the solicitor seeks to charge their client for work done. Indeed, the Court gave the Law Society permission to intervene to allow its standard Conditional Fee Agreement (CFA) to be considered as part of the Court’s broader legal analysis.
The final appeal hearing originally commenced in February 2022. However, part-way through, the Master of the Rolls reached the conclusion that the matters under review were of “very great significance…not just to this case…but to the development of the civil justice system.” As a result, the Court took the very unusual step of adjourning the part-heard appeal, gave further directions and relisted it to be heard from scratch over three days. That hearing took place over 4, 5 and 6 October 2022.
The issues at the heart of the appeal concern the interplay between s.74(3) of the Solicitors Act 1974 (“the Act”) and CPR.r.46.9(2), a piece of legislation and a rule which respectively address whether, and to what extent, a solicitor can charge its client costs greater than those that may be recovered between party and party.
s.74(3) of the Act limits costs in cases concerning contentious business done in County Courts to sums recovered between-the-parties and CPR.r.46.9(2) releases a solicitor from that limitation where there is an agreement that expressly permits the solicitor to charge sums greater than the amounts that could be recovered between-the-parties. However, the judgment of Lavender J under appeal says that interplay is no way near as simple as it seems.
Accordingly, the Court considered whether:
1. s.74(3) of the Act (understood to only apply to contentious business in the County Court) applies to claims which use a pre-action protocol where no County Court proceedings are issued?
2. A solicitor owes its client a fiduciary duty before the retainer is agreed?
3. Those fiduciary duties (if applicable) mean the exemption from s.74(3) in CPR.r.46.9(2) only applies if the client gave fully informed consent to paying more costs between solicitor and client than are recovered between party and party?
4. If no fiduciary duties were owed and s.74(3) was disapplied, was the term in the solicitor’s retainer which required the client to pay more costs between solicitor and client than recovered between party and party unfair (with reference to the Consumer Rights Act 2015)?
5. The client did give her fully informed consent (if required at all) to the term requiring her to pay more costs to her solicitor than recovered between party and party.
In most situations where a solicitor charges its client costs and costs are recovered between party and party, the solicitor/client costs are greater than those between-the-parties costs. This is largely a function of the fact that solicitor/client costs are a liability on the indemnity basis (where proportionality does not operate and the benefit of any doubt as to the reasonableness of those costs falls in the solicitor’s favour) whereas between-the-parties costs are on the standard basis (where proportionality does operate and the benefit of any doubt as to reasonableness falls in favour of the client).
The Court heard submissions on what legal business constitutes contentious and non-contentious business. It was thought that the understanding of where the division lies between contentious business and non-contentious business was settled:
“All business is now to be regarded as contentious which is done before proceedings are begun provided that the business is done with a view to the proceedings being begun, and they are in fact begun, and also all business done in the course of the proceedings. All other business is noncontentious.” re Simpkin Marshall Ltd [1959] Ch 229, at 235.
However, the Court heard submissions from the Respondent (legally represented by Clear Legal Ltd t/a Checkmylegalfees.com) that work done under a pre-action protocol was, in fact, to be regarded as contentious business.
One of the effects, if this submission is found to be correct, is that Contingency Fee Agreements are only lawful when they relate to non-contentious business. But if firms have entered into Contingency Fee Agreements believing the business being conducted is non-contentious business but it transpires the business is contentious business (by the Court reversing the settled understanding) then the effect is that those Contingency Fee Agreements immediately become unlawful with costs being irrecoverable.
All firms of solicitors who charge their clients fees and where those fees may exceed the costs that may be recovered between-the-parties, should read the judgment with a keen eye once handed down.
